Introduction to Banking, Financial Services and Insurance
What the exam tests here
This domain checks whether you can map India's financial architecture - who does what, which statute governs which activity, and how banking, financial services and insurance differ. Expect direct questions on the Banking Regulation Act, 1949, the RBI Act, 1934, types of banks, NBFCs, and the four regulators: RBI, SEBI, IRDAI and PFRDA.
Core rules and concepts
- Banking (BR Act 1949, Section 5(b)): accepting deposits of money from the public, repayable on demand or otherwise, for lending or investment. The demand-deposit limb plus lending is what separates a bank from a lender that is not a bank.
- Scheduled bank: listed in the Second Schedule of the RBI Act, 1934, after satisfying capital and statutory conditions.
- Payment banks accept deposits up to ₹2 lakh per customer and issue debit cards but cannot lend; they park funds in SLR-eligible government securities and deposits with other banks.
- NBFCs cannot accept demand deposits and cannot issue cheques drawn on themselves; RBI regulates them under Chapter IIIB of the RBI Act. Small finance banks can lend and must meet priority-sector and small-loan norms.
- Insurance penetration = premium ÷ GDP, expressed as a percentage; density = premium per head of population.
Worked example
A firm in Hisar accepts ₹50,000 as a two-year fixed deposit and finances two-wheelers. Is it a bank? Reasoning: the deposit is a term deposit, repayable at maturity and not on demand, and the firm cannot issue cheques on itself. Section 5(b) fails on the demand-deposit condition, so it is an NBFC (asset finance company), not a bank.
Traps that cost marks
- Treating every deposit-taking lender as a bank.
- Assuming payment banks lend.
- Confusing penetration (a percentage) with density (a rupee amount).
- Swapping the Insurance Act, 1938 with the IRDA Act, 1999.